Net Profits in the Domestic Electronics Industry from 1991 to 2001 : A Comparative Analysis of the New and the Old Companies

Generally the net profit of newly incorporated companies are observed to be higher than that of their older counterparts. This is explained in terms of the edge the newer companies have vis-a-vis the older ones in terms of recurrent expenditures. So even a small increase in the gross profits of a new firm in absolute terms translates into a significant increase in net profits in relative terms. We examine this phenomenon in the electronics sector in context of India. Our data includes net sales, advertisement and total borrowing over an 11-year period from 1991 to 2001 to explain net profits. We conclude that while these variables significantly affect net profits, their effect is more pronounced for newly established companies